Merger By Design - Page 2 of 7

Merger By Design

assets) has been executing a merger strategy among black-owned banks since 1998, becoming the first black-owned interstate banking entity in the nation after purchasing Peoples National Bank of Commerce in Miami. OneUnited’s acquisition of Los Angeles-based Family Savings Bank in January 2003 helped boost its fourth-quarter profits to more than $1 million, says Kevin Cohee, OneUnited’s chairman and CEO. Although the bank’s assets fell from $499.7 million to $438.6 million because it sold high-yield securities and went through a financial restructuring, Cohee expects OneUnited to post profits of $6 million in 2004, up from $1.75 million in 2003. Profits are expected to grow as the bank expands the residential mortgage lending services it absorbed from Family Savings to its operations in Boston and Miami.

Cohee predicts that there will be more consolidation of black-owned banks because they “need to have scale to provide the types of products and services necessary to meet customers’ needs in the 21st century.” He specifically cited Internet banking, check imaging, and debit cards as services customers will demand.

Atlanta-based Citizens Trust Bank (No. 3 on the BE BANKS list with $359.7 million in assets) had the same idea as OneUnited when it acquired Citizens Federal Savings Bank of Birmingham in February 2003. Although Jim Young, president and CEO of Citizens Trust, says the bank’s 2003 net income was muted by the recession, the acquisition boosted the institution’s assets from $277.3 million in 2002 to $360 million last year. He claims that the biggest challenge black-owned banks face is growing their customer base. “I don’t mean minority market share,” says Young, “I mean mainstream market share — so you don’t limit the bank’s potential to being the largest minority-owned bank on the minority side of town.”

If industry profits continue to be squeezed by a weakened economy and an increasing number of problem loans, Young says mergers are assured. “A precedent has already been set in the past few years with at least four minority-owned banks engaging in consolidation through acquisitions and mergers,” he says. “For a long time, there were no mergers or acquisitions in this segment of the banking industry. But now that it has been done, I think that other [black-owned] bank presidents and their boards of directors recognize the efficiency of growth through acquisition.”

The payoff for Citizens Trust is large. It has expanded its commercial lending expertise to its Alabama branch where such services were scarce. “We think there’s a legitimate opportunity in Birmingham for growth as a commercial bank and we intend to focus on that,” says Young. Citizens Trust has already developed 30 new commercial lending relationships in Alabama, and it expects to enhance its mortgage lending business as well, according to Young. And the acquisition of Citizens Federal allows his bank to market things such as debit cards, credit cards, online banking, and ATM access to some 5,000 former Citizens Federal customers who didn’t have them before — initiatives that will help boost fee income for Citizens Trust.

Carver Federal Savings Bank (No. 1